Dear Momentum Options Subscriber,

It has been a while since I have used the word “epic,” but it might be the best adjective to describe Tuesday’s action between the bulls and bears. The triple-digit moves in the Dow and the nearly 100-point swing on the Nasdaq provided enough drama to make matters worse for the bulls. The bears cracked another level of support and are now close to causing mayhem on Wall Street.

The Dow dropped 112 points, or 0.7%, to settle at 17,068. The blue-chips held 17,100 on the opening attack and rebounded to reach a peak of 17,427 ahead of Wall Street’s lunch break. The fade back to even an hour before the close would have been a good ending to an already wild day. However, the bears stayed motivated and pushed a low of 17,067 into the close. The 360-point drop from peak to trough has near-term support at 17,000-16,800 in play. I mentioned that I would be surprised but not shocked to see 16,800 and the 200-day moving average tested this week. However, a close below this level would have me more worried about a new trend developing. Short-term resistance is at 17,200, which is a level the bulls desperately need to recover by today’s close.

The S&P 500 sank nearly 17 points, or 0.9%, to finish at 1,972. The bears tested my near-term target of 1,975 on the open before a surge by the bulls to 2,016. I knew the fade back below 2,000 (now resistance) would be trouble. The close below 1,975 and the 100-day moving average opens the door for a test to 1,950 and the 200-day moving average.

The Nasdaq tanked 57 points, or 1.2%, to close at 4,547. Tech opened below 4,575 at 4,572 and the 50-day moving average, which was the main clue that 4,550 would trigger. The bulls held the 100-day moving average and cleared 4,600 to test resistance at 4,650 before the meltdown into the close. There is additional risk to 4,500, with the possibility of 4,400 coming into play on pure panic.

The Russell 2000 gave back less than a point, or 0.1%, to finish at 1,139. This may have been the one bright spot for the bulls, as the small-caps came close to holding green into the closing bell. The open at 1,136 and kiss to 1,134 “stretched” my near-term target of 1,140-1,135 (again), with additional risk to 1,125. The index is still below all of its major moving averages (50-,100- and 200-day) and needs to recover 1,150 this week. A close below 1,125 could get scary.

The S&P Volatility Index ($VIX, 23.57, up 3.15) jumped 15% after trading to a high of 25.20. The bulls were able to get the VIX back below 20 on the market’s high, but the close above 23.50 keeps 25 and possibly 30 in the mix.

The bulls once again offered a clue or two that they aren’t ready to throw in the towel, but the action can be gut-wrenching. I love watching the volatility and the back-and-forth blows, however, as they are leading towards a knock-out ending as we wind down 2014.

With the Fed on deck and December options expiring Friday, I mentioned that this week could be one of the more volatile ones of the year. The bears are testing Wall Street’s patience, and the poker table is getting hot. Some players are folding like cheap lawn chair, while others still have chips to play.

I have a few coins in the market pot, and I said we would have to watch the action like a hawk before deciding to add new trades, fold, go all-in, or perhaps start looking at bearish trades. I’m staying patient despite some of the hits the portfolio is taking.

I have used “cheap” options to start small positions, meaning that all of the current trades were opened for less than $1.00. I haven’t made bigger bets (premiums over $1.50-$2.00) because, while I have prepared for this pullback, the bears could stay serious this time. If the 10-year uptrend lines come into play, then I would have to start playing defense.

I have also used January, February and March options to get me through the volatility just like I did for the last batch of trades. I’m also reminding myself that this is exactly how the October lows felt before I cleaned house and hit on nearly 80% of my trades during that period.

From desk to press, futures are shaping up like this: Dow (+76); S&P 500 (+11); Nasdaq 100 (+23).

Momentum Options Play List

Closed Momentum Options Trades for 2014: 97-60 (62%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.

Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.

All prices given in this update are current as of 8:30 a.m. EST.

Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.


American Express (AXP, $88.24, down $1.80)

AXP January 95 calls (AXP150117C00095000, $0.45, down $0.20)

Entry Price: $0.60 (12/15/2014)

Exit Target: $1.20

Return: -25%

Stop Target: None

Action: I warned of risk to $88 and the 100-day moving average. Shares traded to a high of $90.79 after testing $89 on the open, but the close below the major moving averages was bearish. There is additional risk to $86, and a close below this level might force me out of the trade. Resistance is at $89.50-$90.


Marvell Technology (MRVL, $13.79, down $0.29)

MRVL January 15 calls (MRVL150117C00015000, $0.20, down $0.05)

Entry Price: $0.35 (12/11/2014)

Exit Target: $0.70

Return: -43%

Stop Target: None


MRVL February 15 calls (MRVL150220C00015000, $0.40, down $0.05)

Entry Price: $0.55 (12/11/2014)

Exit Target: $1.10

Return: -27%

Stop Target: None

Action: Shares tested resistance at $14.25 before fading below $14 to test support at $13.75. There is a gap to fill down to $13.50 on a close below this level.


Pfizer (PFE, $30.67, down $0.19)

PFE February 33 calls (PFE150220C00033000, $0.35, down $0.05)

Entry Price: $0.57 (12/8/2014)

Exit Target: $1.15

Return: -39%

Stop Target: None


PFE March 33 calls (PFE150320C00033000, $0.45, down $0.05)

Entry Price: $0.68 (12/8/2014)

Exit Target: $1.40

Return: -34%

Stop Target: None

Action: Support is at $30. A close above $32 should lead to a continued breakout to $33-$35. Yesterday’s peak reached $31.56. The 52-week high is at $32.96.

You can view the chart work on PFE in the Dec. 9 Pre-Market Update. You can also read about PFE’s fundamentals in the Dec. 9 Mid-Market Update.


iShares Russell 2000 (IWM, $113.39, down $0.16)

IWM January 121 calls (IWM150117C00121000, $0.35, flat)

Entry Price: $0.90 (12/5/2014)

Exit Target: $1.80

Return: -61%

Stop Target: None

Action: Support is at $112.50, and Tuesday’s low reached $113.03. Resistance is at $115. The bulls pushed $115.34 yesterday.


PowerShares QQQ (QQQ, $99.98, down $1.63)

QQQ January 107 calls (QQQ150117C00107000, $0.20, down $0.10)

Entry Price: $0.98 (12/5/2014)

Exit Target: $2.00

Return: -80%

Stop Target: None

Action: The close below $100 gets $99-$98 in play. Resistance is at $102 if the QQQs can recover $100. I plan to keep this trade open until the end of December regardless of whether the QQQs rebound or not. If I get it wrong, I can close the trade for a nickel or dime and write it off against my winners this year. At this point, the trade is a lottery play and, while it is tempting to establish a new position with February or March options, I think it is best to wait until this trade turns around. Until then, I will place the trade on hold and will bring back coverage once $102 clears.


JDS Uniphase (JDSU, $13.53, down $0.13)

JDSU March 14 calls (JDSU150320C00014000, $0.95, down $0.05)

Entry Price: $0.70 (12/3/2014)

Exit Target: $1.40

Return: 36%

Stop Target: $0.80 (Stop Limit)

Action: Support at $13.50 held yesterday. A close below this level could lead to $13.25-$13 and trigger the Stop Limit of $0.80. Resistance is at $14, and a close above this level would be bullish. The 52-week high is at $14.99.

You can read my full update on JDSU in the Dec. 3 Alert.


Flextronics (FLEX, $10.77, down $0.01)

FLEX January 11 calls (FLEX150117C00011000, $0.30, flat)

Entry Price: $0.68 (9/5/2014)

Exit Target: $1.25

Return: -55%

Stop Target: None

Action: Resistance is at $11. Support is at $10.75, with risk to $10.50. A close below this level might force me out of the trade, but there is still a month in premium, and the break-even point is at $11.68. I will likely roll with this trade through the end of the month before bailing.


Trades on Hold — other 2014 Portfolio Open positions (1): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.

Fortinet December 29 calls (from September 2014) — Shares are holding $28, and I would like to see $29 clear by today. If not, I may try to save the rest of the premium, as the December options expire Friday — Continue to hold.


Holiday Savings Event: The local stores have their holiday decorations up and I’m beginning to think about gifts, so today I wanted to invite you to join me for a special Holiday Savings Event that I’m throwing for a limited time only. Renew your Momentum Options service today and save $200. It doesn’t matter when your subscription expires because I’ll just extend your current membership. Click here now to take advantage of this savings opportunity!

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options